Will Dendreon Continue to Plummet?

With shares of Dendreon Corp. (NASDAQ:DNDN) trading at around $4.86, is DNDN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The past year hasn’t been kind to Dendreon. And many skeptics are calling for more pain in the future. Nobody truly knows if these skeptics will be correct or not. It’s impossible to predict the future performance of a stock, especially a biotech stock. However, we’ll take a look at positives and negatives and then form an opinion.

The biggest potential positive for Dendreon is European expansion for its prostate cancer drug, Provenge. Approval is expected in the middle of this year. In the United States, Provenge sales haven’t been as impressive as originally anticipated, but many drugs get off to slow starts, and this isn’t necessarily a clear indication of what will happen in Europe. It should also be kept in mind that a partnership is possible. An acquisition isn’t less likely, but it also can’t be ruled out. Another positive is that Dendreon is focused on cost cutting. However, Dendreon has quite a ways to go to make its financial situation a healthy one. The short position can be looked at in two ways. Currently, there is a 35.50 percent short position on the stock, which is huge. This indicates that there are many non-believers out there. When a stock has a short position of this size, it usually means poor stock performance going forward. However, in those cases where good news comes out and surprises, a short squeeze takes place. The shorts get nervous and cover their positions quickly, sending the stock skyrocketing. Yet another positive is that a class action lawsuit is now out of the way.

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The biggest negative has been lower-than-expected sales for Provenge. At the same time, sales have increased. The marketing might not be sensational, but Provenge does offer fewer side effects than drugs like Johnson & Johnson’s (NYSE:JNJ) Zytiga and Medivation’s (NASDAQ:MDVN) Xtandi. The most common side effects for Provenge are chills and fatigue. Zytiga and Xtandi are effective faster, but most people would prefer fewer side effects. By boosting immunity to attack cancer cells, Provenge also helps fight off influenza and other potential threats. In regards to Zytiga and Xtandi, Johnson & Johnson and Medivation are much larger companies. Therefore, they have more marketing power. But what would if a company like Johnson & Johnson had its hands on a drug like Provenge? Shorts might scoff at this idea for a variety of reasons, but instead of looking at this from a financial perspective, keep in mind that Provenge helps people! Why would someone want to see a drug like that fail? While Dendreon might be a financially unsound company, as long as it has its hands on an effective drug, there will be potential. Dendreon isn’t a one-trick pony, either. There are many other drugs in the pipeline.

All that said, most investors and traders just want the facts. That being the case, we’ll take a look at some fundamentals. The chart below will compare fundamentals for Dendreon, Northwest Biotherapeutics (NWBO), and Progenics Pharmaceuticals (NASDAQ:PGNX). These three companies differ in size. Dendreon has a market cap of $722.45 million, Northwest Biotherapeutics has a market cap of $88.67 million, and Progenics has a market cap of $239.20 million.

DNDN

NWBO

PGNX

Trailing   P/E

N/A

N/A

N/A

Operating   Margin

-120.91%

N/A

-252.21%

ROE

-203.29%

N/A

-51.21%

Dividend   Yield

N/A

N/A

N/A

Operating   Cash Flow

-$208.72 Million

-$19.06 Million

-$34.64 Million

Short   Position

33.50%

0.80%

4.50%

Beta

2.98

3.41

1.26

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Dendreon is extremely weak.

Debt-To-Equity

Cash

Long-Term Debt

DNDN

168.28

$353.80 Million

$582.49 Million

NWBO

N/A

$111.00 Thousand

$22.16 Million

PGNX

0.00

$58.84 Million

$0

 

T = Technicals on the Stock Chart Are Weak   

Dendreon has performed atrociously over the past year.

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1 Month

Year-To-Date

1 Year

3 Year

DNDN

-10.33%

-8.13%

-51.62%

-86.72%

NWBO

7.69%

12.19%

-33.31%

-77.00%

PGNX

97.50%

72.32%

-45.95%

-2.38%

 

At $4.86, Dendreon is trading below all its averages.

50-Day   SMA

5.97

100-Day   SMA

5.34

200-Day   SMA

5.42

 

E = Earnings Have Been Poor            

Despite a setback in 2012, revenue has been heading in the right direction on an annual basis. On the other hand, earnings have consistently been poor.

2008

2009

2010

2011

2012

Revenue   ($)in   millions

0.11

0.10

48.06

341.61

325.53

Diluted   EPS ($)

-0.79

-2.04

-3.18

-2.31

-2.65

 

When we look at the last quarter on a year-over-year basis, we see steep declines in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

202.14

82.07

79.99

77.97

85.49

Diluted   EPS ($)

0.26

-0.70

-0.65

-1.04

-0.26

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The best-capitalized companies have the most potential in the industry. The smaller companies will have to show a profit prior to going bankrupt. This is a challenge. However, smaller companies with safe and effective drugs often find a partner or are acquired.

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Conclusion

It would be a waste of time to make a logical conclusion on a biotech stock like Dendreon. Biotech stocks often act in ways investors least expect them to act. It almost seems as though there is constant manipulation, which is sad considering what’s at stake. Dendreon presents huge risk as well as huge opportunity. It should be treated as a speculative play only. Dendreon is a WAIT AND SEE.

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